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Hong Kong
CNN
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Chinese internet giants are buying back their shares at a record pace, as they try to boost their market value in the midst of a historic stock rout in the world’s second largest economy.
Alibaba Group (BABA) announced Tuesday that it had bought back $12.5 billion of shares from the US and Hong Kong markets, representing 5.1% of its outstanding shares, in the fiscal year ended March 31.
That would mark the biggest share repurchase by a Chinese tech company in the past year.
In the first quarter alone, Alibaba spent $4.8 billion in buybacks, its second biggest quarterly repurchase in history.
A share buyback usually triggers an increase in price because there will be fewer shares available on the market.
Alibaba’s stock has lost more than a quarter of its value in the past year.
The tech giant’s move comes at a time when Chinese regulators have been asking listed companies to repurchase shares to stabilize market confidence.
China’s stock markets have suffered a protracted slump since their peaks in 2021, with more than $4.5 trillion in market value having been wiped out from the Shanghai, Shenzhen and Hong Kong bourses.
“Alibaba’s decision signals confidence in the company’s future prospects and demonstrate management’s belief in the underlying value of Alibaba’s shares,” said Stephen Innes, managing partner of SPI Asset Management.
But whether the move will give a long-term boost to the share price depends on various factors, including broader market conditions, investor sentiment towards Chinese stocks and Alibaba’s ability to execute its growth strategies effectively, he added.
The Hangzhou-based company has signalled it would buy more. In February, it raised its share buyback plan by another $25 billion through March 2027.
Alibaba has joined a series of Chinese tech companies that have ramped up share buybacks in the past year.
Tencent spent a record 49 billion Hong Kong dollars ($6.3 billion) repurchasing shares in 2023, more than it had spent in total over the past decade, according to the company’s public records.
Last month, the gaming and social media giant pledged to “at least double” the size of its share repurchase to over 100 billion Hong Kong dollars ($12.8 billion) in 2024.
Tencent’s share price has slumped 20% in the past twelve months.
CNN has reached out to Alibaba and Tencent for comment on their repurchase plans.
Other Chinese companies — including Meituan, Kuaishou and Xiaomi — have also ramped up share buybacks in the past year.
Overall, companies listed in Hong Kong spent 126 billion Hong Kong dollars ($16.1 billion) buying back shares in 2023, the highest on record, according to Chinese financial data provider Choice. Tencent alone accounted for about 40% of total share buybacks in the Hong Kong market.
Firms listed in mainland China repurchased 120 billion yuan ($16.6 billion) worth of stocks, more than doubling the amount spent in 2022, according to government statistics.
These efforts are part of a wider campaign by Beijing to draw a line under the stock rout.
In February, the government pumped money into stocks via the country’s sovereign wealth fund and replaced the head of its securities regulator in an apparent attempt to appease public anger.
The efforts appear to have bought Beijing some relief, as the Shanghai and Hong Kong markets have rebounded more than 10% from their recent lows in early February. But they don’t address the underlying challenges the economy faces.
“Investors are worried about China’s economic slowdown, particularly amid challenges such as debt levels, property market risks, and demographic shifts,” Innes said.
Additionally, the global selling of Chinese assets, driven by geopolitical tensions or concerns about regulatory uncertainties, has further pressured Chinese share prices.
While share buybacks can potentially boost investor confidence by signaling management’s belief in the company’s future prospects and its commitment, their impact on reviving global investor confidence in Chinese stocks may be “limited in isolation,” he said.